Notes on American life from American history.

Between Dole and Market

Much of the recent debate over the proper role of government in the lives of the economically unfortunate poses a choice between letting Americans make as much of their opportunities as they can in the free market versus providing people with a stronger safety net, effectively a “dole” that some claim would undermine Americans’ work ethic. Newt Gingrich has, for instance, contrasted a food stamp system that claims to be compassionate to a work system that insists on work and thereby really is compassionate.

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Even liberals have accepted this framing of the debate by emphasizing how much families in distress need help such as unemployment insurance, free school lunches, health assistance, and mortgage relief. Some of the Occupy movement’s rhetoric (e.g., “eat the rich,” “millionaires’ tax”) also seems to accept that the choice we face is either an uncontrolled market or monetary redistribution.

But there is a middle position here. America has often acted in ways that neither put people on the dole nor let them sink-or-swim in the market, ways that help the unfortunate and the fortunate at the same time.

Jobs

American governments have historically provided jobs rather than doles – the New Deal most famously. To be sure, many criticize some of those jobs as “featherbedding” and some certainly are. Others complain that government employment undercuts private market employers. (As I mentioned in an earlier post, southern landowners, in particular, complained about the competition New Deal jobs created for farm tenant labor. Georgia governor Eugene Talmadge wrote to President Roosevelt: “I wouldn’t plow nobody’s mule for fifty cents a day when I could get $1.30 for pretending to work on a DITCH.”) But the bulk of New Deal employment was hard work that produced lasting good, whether it was irrigation ditches, dams, bridges, roads, park trails, or wall murals.

Even before the New Deal, urban political machines emphasized major (and, to be sure, well-padded) construction projects. Most of the hod-carriers and bricklayers did what they were paid for and we can see it all around us: Between about 1880 and 1960, government-paid workers built much of the basic infrastructure upon which we still depend, such as subways, water and sewer systems, sidewalks, highways, and school buildings.

Public Goods

Government also provides a set of shared “public goods” that everyone uses even though the unfortunate need them more – policing, local parks, sanitation, education, for example. The better these public provisions, the better off are less affluent Americans; they don’t need to use their sparse funds to buy those goods in the market.

The big debate these days about health care is about extending what is now provided as a public good only for a minority of Americans (the elderly, veterans, the destitute) to all Americans. This is the only economically advanced nation in which ill or injured people who do not fall into these categories (and are not rich) need to worry not only about getting healthy, but also about whether they can afford to get healthy.

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Regulation

Less affluent people are more vulnerable than the well-off to getting cheated in the marketplace. Lacking money and credit, they must go to bottom-feeding sellers and providers (as in those risky mortgages that blew up); they cannot afford legal advice; they typically lack the tools and time to pursue either better deals or better justice. Similarly, less affluent people suffer more from the “externalities” of the market – the toxic wastes from factories, the economic collapse of communities left by employers decamping to greener fields, the roller-coaster cycle of house values, and so on. Governments regulate markets to minimize such costs.

All governments regulate the relationship between employers and employees. (No nation, modern or old, comes even close to the libertarian fantasy of an unregulated market.) There are rules, for example, about hours, working conditions, age limits, pensions, discrimination, and minimum wages. There are rules about “corporate governance” – how corporations must run in order to protect investors. And there are rules about union formation and power. Such regulation can be formulated to assist the less fortunate.

The United States, however, generally has weak – and often getting weaker – regulations. For example, since about the 1980s our rules about corporate governance have increasingly insisted that the shareholders’ immediate financial interests are the essentially the only interests that management can legally consider – not those of the workers, the local community, nor even the taxpayers who have often subsidized the firm. In this sphere, as in all the others, there are many options that nations can use to re-balance people’s fortunes at least a bit — and that are not simply income redistribution.

Objections

These government actions — jobs, public goods, regulation — do not pick the pocket of a rich guy and hand his wallet over to a lazy bum. Of course, some programs can redistribute money indirectly. Stronger unions, for example, would return to labor the roughly equal share it used to get, before the 1970s, from increased economic productivity; college grants and loans go to the neediest students; tax-supported libraries are more critical to those wh cannot afford to buy books; and so on. Still, these indirect transfers are not “doles.” The largest transfer program (after programs for the elderly and Medicaid) is probably the Earned Income Tax Credit which supplements the incomes of low-earners. But precisely because it gives money to people who do work, it has gotten support from left and right (it was expanded by Ronald Reagan). Moreover, good arguments can be made that these other, non-transfer programs, by stimulating the economy and enabling more Americans to fully participate, actually increase the wealth of all. These are third way approaches between the dole and the safety-net-less market.

One further critique against doing more along these lines – more government jobs, public goods, and regulation – is that we cannot afford to do more in the tough world marketplace. This objection is hard to credit given that other western nations – most of which, because they are so much smaller than the U.S., are much more vulnerable to global market forces – in fact do more along these lines than we do. And their people live well. Where there is a will, there is a third way.

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